Top-10 Digital Business Models by Market Cap & Revenue
In our Digital Business Model Foundations series, today we are covering the largest Digital Business Models by Market Cap & Revenue.
While slight differences exist between the rankings sorted by revenue vs market capitalisation, we see pretty much the same players. We decided to present the companies in the ranking of their market capitalisation. Sorted by revenue, it would look slightly different with pretty much the same players (notably, Amazon would rank 1st).
As of this writing, Apple has the largest market cap among the top digital business models but the rankings can change over time.
#1 Apple
We classify Apple as a digital business model because a significant portion of its value to customers is created by their digital ecosystem.
Based on the platform business model in the Hardware / Software Tech Platform vertical, the iPhone connects app owners with iPhone owners. This sets in motion significant cross-side network effects:
The more (good) apps, the more valuable the iPhone becomes and more customers buy it.
With the number of customers increasing, the iPhone becomes more valuable for those who develop / own apps. This leads to more and better apps further enhancing the value of the iPhone and its ecosystem.
A virtuous loop ensues.
Value Propositions & Value Creation
Apple created a hardware / software technology platform that enables 3rd party apps to be developed for Apple’s customers.
In addition, Apple offers a baseline of free and paid apps. This includes the in-built apps from Maps, Notes, Weather, Stocks and more. In addition, they have their paid apps: TV+, Music+, Arcade among others.
Once the iPhone had a large customer base, they started to develop an ecosystem of connected electronics, like tablets, Apple TV, Apple Watch and more. Switching between these devices is seamless with all data synchronised immediately.
Apple has ensured persistence of users’ most valuable data including photos, notes, App data and backups with users now having more than a decade’s worth of data on their phones / iCloud accounts. Not only does this provide engaging experiences but also creates switching barriers to non-iOS (the Apple Operating System family) devices.
The iOS architecture is being innovated on an ongoing basis with security, privacy, reliability, bug fixes, features and new apps being rolled out on an ongoing basis.
The latest upgrades include generative AI from which a long roadmap of innovations can be expected.
Value Capture (=monetisation)
Apple has found several lucrative ways of monetising the value propositions for their customers. Key ways of revenue generation include:
Sales of the hardware unit at premium pricing/margins due to the ecosystem it creates and the value of the brand they have built.
Switching Barriers lead to upgrade cycles staying within Apple phones. Unlike Android phones, Apple's iOS operating system is fully controlled by Apple and only available on iPhones (walled garden). Switching to Android is complex with all the photos, app data, contacts, backups, etc not easily transferable to Android. Among Android OS phones this is easier and creates more competition among them.
Higher propensity of buying other Apple electronics (tablet, watch, etc) and accessories due to the interplay and access to the same data.
App & services revenue: Apple Apps (Music+, Arcade, etc), iCloud, Apple Care, 30% on certain in-app purchases/subscriptions, Apple Pay and more.
Note that we are only focussing on tech businesses with predominant digital value creation / value proposals. That is why you don’t find any of the predominantly hardware-oriented tech players like Nvidia from the highest tech market cap companies.
#2 Microsoft
Like Apple, Microsoft creates considerable value via digital business models connecting their hardware offerings.
Their productivity Software-as-a-Service (SaaS) M365 (Microsoft 365, previously Office 365) generates >$50b revenue per annum and is the focus of our coverage here.
Value Propositions & Value Creation
Office offers the widest set of features of any office suite.
Easy to use, yet powerful: it’s easy to get started, especially with Word and PowerPoint. Those who need advanced features, like forms, scripts, plug-ins and connections to data sources have access to such features.
The common M365 tools are suitable for a wide range of users unlike some of their more specialised apps.
Each new rollout includes more (collaboration) features for businesses and teams, such as concurrent editing, review, commenting, etc.
While Microsoft has drastically improved compared to say 10-15 years ago in terms of user experience, it probably still has some way to go to reach the smoothness and ease of Apple's iOS.
Value Capture (=monetisation)
Microsoft has a number of key revenue-generating methods:
Subscription to M365 (recurring fee): includes many different plans for the major customer segments, such as students, families, businesses, enterprises and more.
Hardware sales include Surface, XBox, its accessories and more.
Their Cloud products which fall largely under B2B
Dynamic 365 are their Enterprise SaaS solutions, including Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), AI, Business Insights and more.
Their most interesting business segment from a digital B2C perspective is M365 which we are covering in more detail in our premium product here.
#3 Alphabet
Alphabet’s main revenue generators are Google (and to a smaller degree YouTube) ads and the underlying digital advertising platform as well as Google products. While they also have a cloud business and other bets, this makes just about 10% of total revenue.
With that, our focus is on Google which is the dominant player in the Search / Vertical Search Vertical.
Value Propositions and Value Creation
Google started as a Search Engine and this has remained their main revenue generator to date.
Google Search is a Platform Business Model that creates and leverages indirect network effects between search users and website owners and creates value for both participant types.
Free use for search users: the perceived good search results make users come back many times a day. It makes them the gateway for a considerable share of internet traffic. This makes it very valuable for website owners to rank high on the results page for relevant search terms.
Free, well-matched traffic for website owners: this then leads users to the pages that rank high(er) on Google which is what website owners are after. Many website owners will aim to optimise their website to search engines (esp for Google) via SEO (search engine optimisation) and install Google’s tracking code on their pages to get insights. This, in turn, gives Google more data about the users and the websites’ performance.
Paid traffic: those that want to increase their website traffic can put up ads to attract the right type of search users in addition to the organic (free) traffic
Value Capture
The business segment that Alphabet calls Google Services makes around 90% of all revenues. This includes:
Advertising generates 80% of Alphabet’s revenues and 90% of Google Services revenues. Within this, there are various forms of ads. Many are on the Search results page but Google is also using the web assets of others to monetise on ads.
YouTube Ads: this includes the ads revenue of YouTube but not YouTube subscription revenue (which switches off ads).
Google Subscriptions, Platforms and Devices: YouTube subscriptions, YouTube TV, YouTube Music, their Play Store revenues, sale of their Pixel (phone) products and more.
Advertising Platform Model
The most important aspect to note is that Google’s (and Meta’s) advertising revenue comes from an advertising platform model. This is very different to what some call “ad-supported” or simply “advertising”.
An advertising model is to simply display ads on your digital property. This is what millions of websites and apps do.
The advertising platform model, however, has a deep infrastructure and all the crucial user data that is required to deliver efficient and effective ads.
Google’s and Meta’s advertising infrastructure delivers a large portion of all ads globally, irrespective of whether they are displayed on someone's website, app, Google’s Search results page or YouTube.
If you want to learn more about Google’s business model, check out our free in-depth article or our premium product on this topic.
#4 Amazon
Amazon has a wide-sprawling set of offerings and business models. The key focus here is on the major revenue-generating business segment being eCommerce. Amazon leverages two types of business models for their eCommerce businesses:
The linear business model for those parts that are directly sourced ("online stores" and "physical stores" in their terminology) and
The platform business model for Amazon Marketplace ("Retail third-party seller Services")
Value Propositions & Value Creation
Key value creation for their end-customers occurs with Amazon’s massive footprint of inbound logistics, sourcing contracts, warehousing and delivery activities.
This enormous infrastructure leads to:
Low(er) prices on comparable products than most competitors.
Fast delivery down to 2 hours in metropolitan areas on some products or same day on many other product types.
A large (literary unparalleled( choice of products across many product categories on their website.
In addition, their websites and apps are easy to use, navigate, filter and secure. While not the most slick website, they are familiar to the customers with significant amounts of data guiding individual recommendations and personalisation.
Amazon Marketplace Value Propositions for Sellers
Amazon also has value propositions for 3rd party sellers which is the second largest business segment by revenue as we have seen with around ~25% of revenue.
The main value proposition for sellers is the potential to reach a massive customer base. But depending on the products they offer, they have to compete against Amazon-sourced products and other sellers - not a feat that Amazon will make easy for any 3rd party seller. Advertising services can help but will come at (quite) a cost.
Fulfilment by Amazon (FBA) is a service that offers merchants to use Amazon’s fulfilment centres and delivery infrastructure to reach the customer. It includes checkout and payment options, management of returns and more.
Value Capture
Amazon monetises by marking up the inventory that they source and sell to customers. Dynamic pricing capability aims to optimise short and long-term margins while outcompeting competition. The margins from this model are low as evidenced by the fact that Amazon would rank first by a long shot, if we ranked the firms by revenue.
Amazon Prime is a flat subscription fee that avoids further delivery fees (there are exclusions) and includes a share of their various other offerings (Kindle, Prime TV, Audible and more).
Merchants using Marketplace are monetised through various fees, a commission on sales (with the percentage depending on product category) and additional services, such as FBA and advertising.
If you want to learn more about Amazon’s business model, check out our free in-depth article or our premium product on this topic.
#5 Meta
Meta is based on combining single-sided Network Models with Platform Business Models in the vertical of Communications and Social Media.
Meta started out as Facebook and over time added other Social and Communication Networks, notably Instagram, Messenger, WhatsApp and Threads.
Meta is a single-sided network model connecting peers to each other. This is combined with a platform business model (cross-sided network) of ordinary users interacting with businesses and advertisers.
Value Creation
Meta’s social networks are often misunderstood and misreported as a pure platform business model. This is incomplete to such an extent that we have to call it incorrect.
From a value proposition and user acquisition perspective (which is underpinning revenue generation), it is also a single-sided network of peers (or ordinary users if you like).
Single-sided Network Model: Previously there was the (landline) phone where everybody could call everyone else. But it was limited to two participants and voice calls with both participants on the line at the same time. Social Media widened the communication to many participants, who can communicate with text, video, images and over a period of time. But in essence the peer communication aspect of the business model is a single-sided network.
Platform Business Model (PBM): This is where it extends beyond peers (and one participant type). We have businesses (which can mean brands, companies, influencers, creators, website owners, media/news, VIPs and other groups) participate and try to interact with potential customers.
Value Capture
Advertising generates an overwhelming part of their revenues. Ad revenues are based on the platform business model and an advertising platform.
Sales of inventory: Reality Labs revenues are largely generated by selling physical products but make a negligible portion of revenue to date.
Their advertising infrastructure is massive and reaches beyond their own properties though not to quite an extent as Google’s. However, if we consider the data collection portion of the ad platform, then it reaches into millions of websites and apps that install Meta’s Pixel tracking code which is essential to an Advertising Platform Model.
If you want to learn more about Meta’s business model, check out our free in-depth article or our premium product on this topic
These are the Top-5 by quite a margin. Now, let’s briefly also cover the best digital business models by market cap & revenue ranks 6-10.
#6 Oracle, SAP, IBM
We are combining these three heavy hitters as they are in the B2B business and thus of lesser interest for us. That said, they come from the Software-as-a-Service (SaaS) vertical that we are very interested in.
All three have similarities and differences with the overlap between Oracle and SAP being larger than with IBM. All three are also competing to some extent with Microsoft's ERP solutions.
They operate in the Enterprise Software-as-a-Service business. That said, IBM and Oracle still have a large footprint of on-premise Enterprise Software.
Value Creation
Focussing on their SaaS solutions, here are some key callouts:
Oracle creates value through Cloud Infrastructure and Cloud ERP Applications. The latter includes the “whole” sweet of traditional ERP areas, such as financial management, procurement, human and other resources, supply chain, manufacturing and more.
For our purposes, SAP is very similar to Oracle.
IBM is in decades-long transformations. A newer IBM SaaS product is Cloud Pak for Data. It is an AI platform that helps organisations to extract value from their data that can run on IBM Cloud, AWS and Azure.
IBM Watson is a suite of AI and machine learning tools introduced in 2011. Over time, It has been tailored to areas, including healthcare, finance, education and customer service.
Value Capture
At an overall level, IBM generates revenue from hardware sales, software, cloud computing and services. They still leverage their decades-old installed base.
Oracle monetises their cloud services via different pricing models depending on the services used. In addition, they also sell software licences for on-premise enterprise software and associated services (for tailoring, deployment, etc).
SAP monetises in similar ways as Oracle. The details and weightings are different but considerable similarities exist in terms of business models.
#7 Netflix
Netflix is the largest Content & Media company by market cap. YouTube is owned by Alphabet and we don't know how much they would be valued if they were a standalone company.
Value Creation
Netflix is based on the linear business model. They source their content via licensing or purchasing of ownership rights. 80% of their content, however, is self-created.
Netflix has a forward planning cycle of funds and content creation. They consider their competitive advantage to “deliver the right titles to the right audiences at the right time”
Shows and movies are created in a complex process involving thousands of people, scripts & screenwriting, actors, directors, sets and studios.
Value Capture
The main method of monetising are Netflix’s subscription plans. In the recent two years, they made a number of changes which seem to be paying off well.
They have cracked down on password sharing, introduced an ad-layer that comes with a lower subscription fee and introduced country-specific pricing.
If you want to learn more about Netflix’s business model, check out our free in-depth article or our premium product on this topic.
#8 Salesforce
On the surface, Salesforce may seem to be in the same category as Oracle and SAP. But they are more (1) more specialised in CRM and (2) cloud-native SaaS. Salesforce was one of the protagonists of SaaS.
Value Creation
Their suites of products involve solutions for customer service, management, marketing, sales, commerce, analytics, AI and a lot more.
The aim is to provide all these services at a higher efficiency than competing products. The SaaS-native architecture makes this a more credible claim than those who moved to the cloud from mainframes and other monolithic architectures.
Having highly customisable suites of products, they have bundled industry-specific combinations of tools.
Value Capture
Revenue is largely generated by subscription fees based on modules and number of users. Typically pricing structures are complex and often quoted individually based on the selected modules.
#9 Booking Holdings
Booking.com is based on a Platform Business Model in the vertical of Online Travel, Dining & Events Digital Businesses with a focus on hotels, accommodations and flights. They are the largest player in this vertical.
Value Creation
They aggregate information and data from hotels via complex IT architectures including hotel inventory management / distribution systems (and sometimes to the hotel IT systems), to collect a range of information including real-time availability and pricing.
They make it easier for customers to compare and select hotels than going through many individual hotel pages.
Value Capture
They also manage the booking and payment transactions for which they take a commission on the booking price. In addition, they have ancillary revenues via flight bookings, rental cars and other travel destination offerings.
If you want to learn more about Booking’s business model, check out our free in-depth article or our premium product on this topic.
#10 PayPal
PayPal is based on the platform business model with consumers as one participant type and businesses / merchants as the other. They are one of the largest players in the Fintech space.
Value Creation
The key value propositions are centred around removing friction and risks from the payment process, like easier, faster checkout processes / browsers / devices, point-of-sale financing and fraud / risk prevention.
Their products include payments, digital wallets, a viable payment option for small merchants, Venmo (splitting bills / sending money to friends), Pay In 4 (instalments over 3 weeks).
Value Capture
One of the main ways of monetisation are transaction fees (often a percentage-commission or service fee). But the details are complex. On the merchant side, there is also a complex schedule of fees with commissions being the most frequent.
If you want to learn more about Fintech business models, check out our free article or our premium product on this topic.